Most still believe housing market recovery unlikely

By JEFF SALWAY
Published on 28/10/2012 01:30

Optimism over the housing market 
outlook remains thin on the ground in Scotland, despite increased expectations of a house price rebound.

Fewer Scots than a year ago expect house prices to continue trending downwards, according to a Bank of Scotland
report out today, yet most still believe a housing market recovery is unlikely.

A survey by the bank found that 29 per cent of people in Scotland think house prices will be higher in a year’s time, with one in four expecting them to go in the opposite direction, giving a balance of +4.

Sentiment has improved since the corresponding survey a year ago, when the balance was -17.

Nitesh Patel, housing economist at Bank of Scotland, commented: “Despite some recent weakness, the general improvement in confidence in the outlook for house prices over the past year 
reflects the relative resilience of the Scottish housing market.”

However, Scots are more pessimistic about the immediate prospects for the housing market than people elsewhere in the UK, as they were a year ago.

The survey came in the wake of the biggest monthly fall in Scottish house prices in more than three years. Prices in August were 2.1 per cent lower than a year earlier, the latest LSL/Acad figures show, taking them to their lowest level since March 2009.

And the growing minority expecting house prices in Scotland to climb over the coming months think the increase will be modest, with a 5 per cent jump at best.

Alison Mitchell, mortgage expert at Edinburgh IFA Robson Macintosh, goes along with that view.

“The housing market has seen a number of peaks and troughs over the last few years with speculation rife on all fronts,” she said. “I feel that the next 12 months will be good for the market with a small, if any, increase in house prices.”

Optimism continues to be undermined by concerns over job security and the challenges of raising a deposit at a time of low interest rates and tight
lending criteria.

Almost six in ten Scots surveyed by Bank of Scotland cited the difficulty of scraping together a down-payment as a barrier to buying a home. A similar proportion pointed to the weak jobs outlook, while one in four said household finances were keeping would-be buyers out of the market.

The survey suggests that activity in the market is likely to remain muted, with just 2 per cent of Scots feeling positive about buying and selling over the next year.

“People are sitting tight and deciding not to move, choosing to clear debt rather than spend unnecessarily.These factors all have a role to play in house price movements,” said Mitchell.

Confidence among homeowners and would-be buyers may be further affected by new mortgage market rules set out by the Financial Services Authority this week.

While the reforms, which include stricter affordability checks and a crackdown on interest-only lending, don’t come into force until 2014, the impact is likely to be felt sooner.

Mitchell said: “News of tighter lending policies relating to first-time buyers and interest-only lending will not help an 
already fragile sector.”

The outlook for the housing market would be brighter if lenders did more to help first-time buyers, she added.